Nicholas C. Harbist and Lauren E. O’Donnell
On January 10, 2018, the Department of Justice (“DOJ”) Civil Fraud Section Director, Michael Granston, sent an internal memorandum (the “Memorandum”) to attorneys responsible for civil False Claims Act (“FCA”) enforcement. The Memorandum provides guidance to DOJ attorneys considering whether to dismiss FCA qui tam cases. The Memorandum begins by noting that, while the number of FCA qui tam cases has increased substantially over the years, the rate of government intervention has remained the same. The Memorandum advises DOJ attorneys to consider seeking dismissal as they evaluate whether to intervene.
The Memorandum’s introduction notes that the government expends significant resources in qui tam cases, even when the government declines to intervene because it monitors non-intervened cases and is sometimes required to produce discovery or otherwise participate in the proceeding. The introduction observes that cases that lack substantial merit can generate adverse decisions that affect the government’s ability to enforce the FCA. Thus, according to the Memorandum, dismissal is an important tool to advance the government’s interests, preserve limited resources, and avoid adverse precedent. Given this backdrop, the Memorandum appears to be encouraging DOJ attorneys to consider dismissing more cases initiated by private relators.
The Memorandum identifies seven factors, which are neither mutually exclusive nor exhaustive, to consider:
- Is the legal theory defective and/or are the factual allegations frivolous?
- Does the action duplicate a pre-existing government investigation without providing additional useful information?
- Has the relevant government agency determined that the action threatens to interfere with the agency’s policies or programs?
- Is dismissal necessary to protect DOJ’s litigation prerogatives because the action, for example, adds to excessive lawsuits or could result in unfavorable precedent?
- Will dismissal help safeguard classified information?
- Are the costs of litigation likely to exceed any expected gain?
- Does the relator’s action frustrate the government’s effort to investigate because, for example, the relator has failed to provide all material information to the government?
The Memorandum concludes with several points. Notably, it reminds DOJ attorneys that they need not dismiss the entire case; they can dismiss certain claims or defendants to streamline a matter. It also encourages DOJ attorneys to advise relators of perceived deficiencies in their cases, as well as the prospect of dismissal, so that relators can consider dismissing the action on their own.
The Road Ahead
Some commentators have cautioned that defense counsel should manage their expectations about the Memorandum because 1) it largely reflects a restatement of longstanding considerations and legal provisions regarding FCA dismissals, and 2) the DOJ may continue to seek dismissal only in rare circumstances. The fact that the government reported $3.7 billion in FCA recoveries in settlements and judgments in 2017 makes some commentators skeptical that the DOJ will bite the hand that feeds it by dismissing more cases.
At the very least, the Memorandum provides a roadmap for how defense lawyers can frame motion practice, government presentations, and discovery to entice the DOJ to consider dismissal. Defense counsel should thus be mindful of the Memorandum and lobby the DOJ to dismiss cases accordingly.
This article was originally published in the April 2018 edition of White Collar Watch. Click here to read the article online.